Tuesday, December 6, 2011

Social Security in even bigger trouble than most think

The President is calling for an extension of the payroll tax cut. This payroll tax is used to pay for SS benefits. We have 10,000 baby boomers retiring onto the SS rolls everyday. The more we rebate in payroll taxes the more that SS benefits costs fall onto the regular budget thereby making the deficit even worse. Bruce Krasting has done a great analysis on this.

Looking at the data on this basis, you'll see the actual deterioration that took place in 2011. 2012 will be worse than 2011. Benefits are going to jump by $50B+ next year. 10,000 new people are signing up for checks every day of the week. Add the fact that every one of the 55mm beneficiaries will be getting 3.6% more in their checks (COLA adjustment). The revenue side is a wild card. What will GDP be? If it's around the 2% that is currently anticipated, revenues at SSA will fall well below plan. A flat economy (+2%) would translate into a $100B 2012 primary deficit (payroll receipts minus benefits). A number like that is not on anyone’s radar today.

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If we are going to experience what I believe we will, then the cumulative SS cash shortfall over the next decade will add ANOTHER $1.5 trillion onto Public Sector Borrowing ("PSB"). (A shift from the Intergovernmental account into the PSB account; AKA the Chinese). This increase in PSB more than offsets the $1.2 T of cuts that the congressional super committee failure has just mandated.

The consequences of SS (and similarly the other government retirement funds) on PSB over the coming years is not now being considered by those looking at America’s debt profile. It will be soon enough. The current thinking is that SS is a problem that can be worried about in another ten years or so. That's simply not true.

So basically what we have here is a cynical attempt by this current president to bribe voters with their own money to the long term detriment of the SS program. And of course I expect the republicans to cave because they do not want to seem heartless. Because all that matters to them is the next election and either keeping or winning power. The fact that they are destroying the country does not concern these sociopaths.

But do not worry former Alan Greenspan said the government will never renege on SS payments because they can print the money. Of course when you print money to pay obligations prices go up, thats called inflation, so a loaf of bread costs $10, $100, or $1000 basically making your SS check worthless. You better be making plans to take care of your elderly parents because the government will not be able to afford it.

And people are still poo-poo owing gold and silver as defense against these politicians. Good luck with that plan

1 comment:

Craig Cavanaugh said...

My folks now are collecting their Socialist Security. I hope they sack some away for me, because I have no delusions of actually collecting on that which was stolen from me against my will. I could do a lot with the $150 per month which is taken from me without my consent.

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